Saira Mailk on Breaking into Finance, The Next Big Risks & Educating Children

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Joseph Cass

Hello, and welcome. My name is Joe Cass. I'm a Senior Director here at S&P Global Ratings and the host and creator of the FI15 podcast. So on this episode, Saira Malik, Chief Investment Officer at Nuveen; and Ruth Yang, Global Head of Thought Leadership at S&P Global Ratings.

So today, we're going to talk about a lot of things. We're going to talk about the next biggest risk. We're going to talk about private credit and how to best educate children on personal finance. So a quick reminder, the disclaimer, as always. So the views of the external guests are their views alone, and they do not represent the views of S&P Global Ratings. Okay. Great. Thank you so much both for joining.

Saira Malik

Nice to be here, Joe.

Ruth Yang

It's great to see you, Joe.

Joseph Cass

Excellent. Saira, I will kick off with you. So I was wondering if you could just give us or maybe kick us off by giving us an overview of your background, your career history, how you are brought up because from what I read, it was kind of written in the stars that you would move more into medicine instead of finance.

Saira Malik

Well, it's true, Joe, that medicine tends to run in my family's blood, not finance. My grandmother and mother were both medical doctors. Actually, my grandmother became a medical doctor in India. And when she wanted to go to medical school, they didn't actually allow women into medical school. So when she graduated in 1934, I have her diploma hanging in my house because the hims are frosted out and replaced with hers.

And next to the he, there's an S written in because when she graduated from medical school, they actually didn't have diplomas for women doctors yet. And my mother followed in her footsteps too. At that point they were in Pakistan. The interesting thing about my mother is she did become a doctor, but she wanted to be a surgeon. And she had moved to the United States by then, and her adviser told her, he didn't think she should be a surgeon because she didn't look like a surgeon or sound like one.

So he didn't think patients would be comfortable with her operating on that. So she did eventually become a doctor, but she practiced as a family practitioner for her whole life. And that fast forwards to why did I get an interest in finance. Well, my mother was also a stock market enthusiast. She loved finance. It was her hobby. So as a teenager, she got me really interested into finance. Interesting for me, too, when I graduated from high school, and was thinking about going to college, I went to my high school guidance counselor, and I asked him for advice.

And his advice to me was that I should not go to a 4-year college. I should just end my education at community college. This was growing up in Stockton, California. It taught me one thing, which is that I needed to invest in myself and not listen to what other people told me. So with my mother's endless encouragement, I did go to a 4-year college, and I earned my Series 7 & 63 while I was a junior in college and started publishing my own stock market newsletter while I worked as a financial adviser.

And that's how I got my start into finance. Since then, I went to graduate school. I got hired by JPMorgan Asset Management as an equity research analyst covering specialty chemicals. I then became an equity portfolio manager and followed one of my mentors over to TIAA Nuveen.

At TIAA Nuveen, I became -- I was an analyst, portfolio manager, Head of Global Equity Research, Head of the Global Portfolio Managers, eventually Chief Investment Officer for Nuveen Equity. And today, I'm Chief Investment Officer for all of Nuveen overseeing about $1.1 trillion in assets under management. I also still do manage a multibillion-dollar global equity portfolio as I've remained an investor for my entire almost 30-year career.

 

Question and Answer

Joseph Cass

Fantastic. Thanks, Saira. Did I hear rightly that you had a newsletter back in the days when they were physical newsletters?

Saira Malik

It was. It was printed on a dot matrix printer. I used to mail it to my clients, and I would ask them if they like my stock picks in the newsletter, would they buy and sell the stocks through me as their financial adviser. And that comes full circle to today, where I do publish every week our Nuveen CIO commentary. Of course, now it's digital, shows up on places like LinkedIn and in people's e-mail boxes.

Joseph Cass

Perfect. Okay. Great. Well, Ruth, thank you so much for joining the program again. So as the Global Head of Thought Leadership at S&P Global Ratings, what's kind of the single biggest market challenge you can foresee both for investors and for companies going forward?

Ruth Yang

Without a doubt, the higher interest rate environment is, in my opinion, the biggest challenge. We started to see how supply chains have normalized. Inflation remains high, but it seems to be trending down in the U.S. But even if central banks were to stop raising rates or to even start lowering them in the next 12 months, we are nonetheless in a much higher interest rate environment than we were 24 months ago.

And for investors, this higher interest rates are both good and bad, right? The good news is yields are higher. The bad news is that the strain on borrowers could continue to push default rates up. We're already about double where we were last year. Admittedly, they are still historically low interest rate environments. But the strain on borrowers is significant.

They not only have to adjust the funding costs that they haven't seen in a decade. But as we started to see this year, there are these knock-on effects, the pressures on banks, strained financing conditions and lower asset prices. All of these really for me, make this higher for higher interest rate environment, higher for longer, the biggest challenge we're facing in the market.

Joseph Cass

Thanks, Ruth. Saira, I saw a recent or recent-ish Bloomberg article you contributed to, and it was called the next big risks. So given what's happened over the past, say, a few months in terms of bank runs, real estate volatility, hybrid instability, what do you and what do Nuveen identify as the next big risks?

Saira Malik

Well, there's many unknown and known risks out there. And the 2 that we think are most important to think about right now is, one, the race to renewables, which is what we discussed on that Bloomberg video. And secondly is that lower is over. And what I mean by that is the world of low interest rates and low inflation is over for the foreseeable future. Starting with the race to renewables, though, by 2025, renewable energy will be our largest form of electricity that we get.

There's going to be a lot of implications for that. And one important thing is going to be the commodities that are used as inputs into -- wind, solar or electric vehicles. We have not been investing heavily in commodities, particularly with copper, which is going to be in heavy demand for renewables, the U.S. copper production is down by about half in the last 25 years.

So we're going to have very tight supply of a lot of these commodities that we're going to be increasingly -- that are going to be increasingly in demand going forward. That's going to have implications for inflation also. And when I say lower is over, it's a little different than what we often hear, which is higher for longer because lower over means that we're just really not going back to that regime of very low rates of inflation.

So first of all, if you take a step back, look at the global financial crisis. Post the global financial crisis, the average Fed funds rate was under 1% -- for about the 50 years pre the global financial crisis, the average Fed funds rate was almost 6%. I think the unusual period was the post-GFC, not the pre-GFC. So I think inflation interest rates are going to go back to levels that are much higher than we've seen for many of us for the majority of our careers.

They're going to go back to that sort of 3%, 4% range going forward, and they're going to stay there. That's going to have implications for the consumer, for infrastructure, for real assets, for equities and a lot of asset classes across the board. And many of us, as I mentioned, during our career, have not been used to a regime of higher rates and higher inflation.

Joseph Cass

Interesting. Thanks, Saira. So Ruth, from our perspective, what real kind of big themes of S&P Global Ratings identified that investors should be aware of right now? And why are they important?

Ruth Yang

So at S&P Global Ratings, we have these regional and global credit conditions committees, right? And they partner with the ratings analysts or an economist and our economists, and they identify and assess the potential credit risks. Every quarter, the CCC publishes 4 regional risk reports and 1 global, and each publication includes a top risk table. So if we look at Q2 2023, which we're in now, the global risk table from the global CCC has highlighted 3 main areas of concern.

One, of course, is that credit quality continues to erode. Despite recent economic and credit resilience, the economy is slowing, inflation is sticky, and there are tighter financing conditions, and this has pushed the negative bias, which is the share of credits with a negative outlook higher, in particular, credits in consumer goods, retail, media, those at the lower end of the rating scale are most at risk.

Secondly, there is, of course, as we've been talking about, the full impact that's yet to be realized of sharply higher interest rates. As I mentioned before, the banking stress in the U.S. and Europe is a reminder of how quickly confidence can erode and the rapid response by authorities suggests that a broader contagion will be avoided, but still high interest rates are really going to probably continue to strain credit markets.

And most generally, when we look at the world around us, downside risks have increased, tighter financing conditions, combined with more conservative lending standards, these could push many economies into a hard landing.

Geopolitical risks, of course, continue to exacerbate the situation. The war in Ukraine continues. U.S.-China tensions remain acute. Market sentiment continues to shift, and it will reveal other hidden stresses that could spark more volatility. So while we started this year with a general sense of optimism, right, I think Q1 really reminded us that the market headwinds continue to be quite strong and steady.

Joseph Cass

Thanks, Ruth. Saira, you mentioned in one of the previous answers that your personal background is on the equity side. So for someone who is perhaps equity by trade, let's say, what's your current view of the fixed income market? And how is it going to play a role in the institutional investors portfolio going forward?

Saira Malik

Sure. Well, it's no secret that the typical 60-40 equity fixed income portfolio did not work in 2022. And many of our clients are questioning, is the 60-40 dead? We don't think it's dead, but we do think that given what we saw with correlations between equity and fixed income in 2022, that clients need to be diversified, and that does bring in the importance of alternatives and other areas that are nonpublic.

However, when we go on to fixed income, though, we do think there's a lot of promise in fixed income going forward. First of all, our theme across all asset classes is look for quality. When the economy is slowing down and likely going to a recession, we want to own those quality companies, which can remain resilient during a recession.

Now the other side of that is we also, within fixed income, want to reach for yield. So make sure we're generating strong enough returns so that it is worth us putting our money into we're beating what we can earn on cash.

So areas where we're seeing interest, BB rated corporate credit, high-quality, high yield. These are areas where you can earn often returns of excess of 6-plus percent and also default risk is low and quality is there within -- in the higher quality areas of those segments. For example, high yield is very exposed to energy companies, which are in very strong fundamental positions right now.

Joseph Cass

Fantastic. And Saira, can you talk a bit about Nuveen's relationship to TIAA? Kind of how does the relationship work in practical terms? What's your mandate? And do you manage their assets exclusively? Or do you also take on other capital as well?

Saira Malik

It's a combination, and it's really a benefit to have the relationship we have with our parent, TIAA, because it means we're an asset owner and an asset manager. So it aligns our goals with our clients. Now we do that in 2 ways. One is through the general account, which tends to be very heavily exposed to fixed income. And the second is through the CREF equity accounts. Starting with CREF equity accounts, we've been managing equities for over 70 years, about $200 billion in assets in these accounts.

This is where I manage my multibillion-dollar portfolio, and I'm listed or lead PM on all of the $200-or-so billion in CREF equity accounts. Now fixed -- in global fixed income, we have over $500 billion in assets under management, thanks to the combination of third-party assets that we manage and the money that we manage within the general account.

And this has given us the ability to have one of the largest credit research teams in the world with over 100 investment professionals. And again, the most important key here is that our relationship with TI allows us to align our goals with those of our clients because of that relationship with the general account and the CREF accounts.

Joseph Cass

Cool. Thanks, Saira. Ruth, moving to a topic we've spoken about or I've spoken about at least over the past 6 months, nearly every month, private markets. Interested to know how you think the rising rate environment could potentially change the landscape for private markets in terms of the investor demand.

Ruth Yang

Yes. So I think that the investor demand will really relate to how well private markets navigate this higher for longer. I mean rising rates again mean higher yields, which is good for investors, but this is only true if private markets don't experience a severe disruption.

If private equity and private market asset managers proceed with caution, we don't experience significant losses, then investors will benefit from this higher rate environment, right? But if default rates spike and losses start to pile up, liquidity demands on investment vehicles force managers to sell and realize the current level of unrealized losses, this could really cause investors to back away from the private market.

So I think it's premature to say what they will do. I think it remains to be seen how well private markets and their commitment to credit analysis, credit research really pays out with regards to the assets that they hold.

Joseph Cass

Thanks, Ruth. Saira, interested to know how Nuveen is approaching private markets, what your plans are for the space? And how will owning private assets fit into your goals in servicing the TIAA?

Saira Malik

I think private assets are important alternatives, especially with that underperformance of the 60-40 equity fixed income portfolio last year. It really highlights the importance of diversification. We're able to do that with our alternatives offerings, not only to our third-party clients, but for the general account, too, and that's a benefit.

I mentioned we have over $500 billion in global fixed income assets and $165 billion of that is in alternative credit across timberland, farmland, infrastructure and private credit. So some examples of how we've innovated over time.

Just recently, we acquired Arcmont, which is one -- a large European private credit manager. Then combined with Churchill, which is a division that we all -- that is already part of Nuveen, makes an almost $70 billion global private credit business that we can offer to our clients.

They also recently launched the Nuveen Churchill Private Capital Fund, which allows qualified individual investors to access areas such as senior loans and junior capital. It's also important for ESG and renewables, where we have C-PACE financing for buildings that are looking to transition to lower carbon.

An interesting fact on real estate is that 80% of the buildings in place today will be the same buildings in 2050, which is when we're targeting net zero carbon. So it's important for these buildings to transition to lower emissions that -- the ones that are already in existence and then also providing financing to agribusiness and food companies, farmland is a very important piece for us.

So it's constant innovation in alternatives, and that is beneficial to our clients because it helps them diversify their portfolios and the less correlation within your portfolios, the better. We learned that in a tough way in 2022.

Joseph Cass

Thanks, Saira. So Ruth, you graduated from Harvard. You're in a senior position, managing teams, managing thought leadership kind of at a very high level. Looking back thus far, what are the things that no one really tells you about growing your career that might be useful for others to hear about?

Ruth Yang

Yes. I don't -- we only have a little bit of time. There are a lot of lessons that I've learned, a lot of them in a very hard way. But I think the one that I really hang my hat on when things are really tough is the importance of authenticity, which is about trusting your instincts.

Women in particular, learn, I think, largely to question and doubt themselves when they're young, and the pressure is to realign your belief with the majority or that of the status quo. But you have to believe in yourself and what you know from years of experience.

Leaders have to disrupt the status quo. We have to challenge the establishment, and that's never easy. But it's our job. And when your feedback is no or you're too disruptive or you're too direct, of course, you have to check and double check the math on your decisions, right?

You have to be sure that you know what you know. But you also have to be willing to move forward and defy the opposition. In every leader's experience, there's a moment where you have to close your eyes, hold your nose and jump and you find that courage really from trusting yourself. So just know yourself, know what you know and make the best decisions possible, but believe in that voice in yourself that tells you what the right thing is.

Joseph Cass

Fantastic. Thanks, Ruth. Saira, who have been some of the most influential individuals you've kind of come across in your career in finance thus far? So that could be people you've worked with or kind of fully fledged mentors.

Saira Malik

Sure. I'm going to talk about my mentors because I believe that confident people can change the world, and we can give people the confidence they need through mentorship. I started out earlier talking about where I grew up, in Stockton, California and the advice that I got to not go to a 4-year university.

That sort of theme of feeling like I didn't fit in, oftentimes, I feel like I look differently, look different when I walk into a room, I say different things. I don't always feel like I fit in. So I've gotten comfortable with that over time. And how I've done that is through these incredible mentors that I've had over time and the confidence that they gave to me. I'd like to talk about 3 -- 2 mentors and somebody else. So first of all is Keith Banks.

He's a Vice Chairman at Bank of America now. But when I met Keith, I was a graduate student at University of Wisconsin. He was Director of Research at JPMorgan. He's the one who hired me into equity research. He saw that I was so interested in picking stocks. He let me skip the typical JPMorgan rotational program through divisions and come straight into equity research. I don't think I'd be where I am today on this career track if it wasn't Keith taking a chance on me. Second is Susan Ulick.

She's a woman I met when I first joined JPMorgan as a chemicals analyst. She was a steel analyst. She took me under her wing. She eventually became Director of Research at JPMorgan, and she's the one who went to TIAA Nuveen, and I followed her and I stayed with her for her entire career. She's now retired. She retired as CIO of equity. And maybe it's not surprising that I once had that role also because I pretty much followed her career footsteps.

Now I'm going to talk about one more person, which is that high school guidance counsel who advised me not to go to a 4-year university. He taught me something, too, and that was to invest in myself. When people like -- say things like that to me, I often think you don't know me, but you don't know what I can do. And I was fortunate that [indiscernible] (00:19:27) for my mother who had so much enthusiasm for what I should pursue in life and these mentors, I was able to overcome that.

But I think it's important to understand that no matter what your background is always invest in yourself, and that encouraged me to get my Series 7, 63 as a teenager. And basically, when I graduated from undergrad, which was Cal Poly San Luis Obispo, I applied to 20 Wall Street firms, and I got rejected from all 20. One of those was JPMorgan, where I eventually ended up. And that sort of passion and resilience I had to keep pursuing, it sometimes came from people who told me, I couldn't do it or I shouldn't do it.

Joseph Cass

Fantastic. And Saira, from Nuveen's perspective, what investment theme topic or view do you believe to be true that few other investors would agree with you on?

Saira Malik

I think first, I'll start with the market that -- we talked a little about lower is over when it comes to inflation and interest rates. The markets have pretty consistently started to price in some significant rate cuts by the Fed. I think it's more that the Fed hikes interest rates and then takes a pause but doesn't move to a pivot.

There's many areas of inflation that are quite sticky from wages and shelter. I think inflation is going to stay moderately high for a long time, and we may even have difficulty meeting that 2% inflation target that the Fed has put out there. I think that's one area of the market. The Fed pivot to rate cuts is not in our forecast. Second is the importance of infrastructure, not only because of renewables and the amount of electrification of the grid.

I think infrastructure is going to be a very strong category to invest in going forward. Globalization or localization is also very positive for infrastructure. And then infrastructure is a key call for us. It was our top pick coming into 2023 because it tends to be very recession resilient because the inputs to infrastructure are waste management and utilities, which are areas that were resilient during a recession. We still take our garbage out and need to turn on our lights even if the economy is slow.

So that's another area. And then third is commodities. It's a sector that's been out of favor for many years. And we talked about earlier, which is the increasing amount of demand for areas like copper, cobalt, lithium is going to accelerate significantly going forward as we move to a lower carbon or net zero carbon economy.

So that's a third area that I think investors may not be looking at as closely as they should. So infrastructure, commodities and lower over in the sense that we're not going to go back to that post global financial crisis period of very low interest rates and inflation for the foreseeable future and maybe the rest of my career.

Joseph Cass

Very interesting. Thank you so much, Saira. So a question for both of you now. So you both work in senior positions within financial institutions and you both have children. So how do you go about educating your children on personal finance issues? And what can all parents listening or watching do to help their children in this regard? So Ruth, we'll kick off with you on this one.

Ruth Yang

So I have to disclaim this and say I think most parenting techniques are trial and failure, and you fail a lot more than you succeed, right? With regards to personal finance, this is a very challenging time. I find to teach my son about money because of the digital payment world, right?

When I was a kid, I had a savings account and a passbook and I would go bring money to the bank and the tellering, you deposit it and you'd have to go to the bank to take it out. And it was a very tactile interactive experience. There was friction there to put money in and take it out. Today, it's seamless. He's got a debit card, an ATM card, money is easy come, easy go to a certain extent. And it's important for him to learn that even though it's easy to do it, he has to learn to budget.

So we actually just put him in the situation. He's 13, he has a debit card. He has an allowance, he earns money. When he's out of money, he's out of money unless grandma rescues him. And I think that just simply by the process of trial and error, he's starting to learn when he really wants something like VR head goggles, he has to save his money. He can't just buy every little thing along the way, and he has to save money.

And the one thing I always tell him when he asks me for something like a motorcycle, my answer is, grow up, get a job, save money, pay your own bills, live on your own, you can have a motorcycle. And he's starting to understand the importance of being fiscally responsible because that allows him in the future to be independent from his mother, which is fine. But I think like that's his ultimate goal, and I have to reconcile those things to him.

Joseph Cass

Cool. And Saira, what's your view on this topic?

Saira Malik

Well, financial literacy is something I'm very passionate about, starting with my mother who talked to me a lot about the stock market and finances as a teenager, and that's why I'm in this industry today. I think, first of all, money should not be a taboo topic. Many people are embarrassed to talk about money.

I think we should talk about money and how we're thinking about what we're doing with our money. Social media wasn't in existence. When I was looking to get into Wall Street, I think getting our -- I'm very passionate about making sure that our views are out there on social media like LinkedIn so that I can make sure that it's very accessible and levels the playing field for anyone who's interested in learning about the market.

Speaking of engagements, I go to my daughter school. So I have 2 girls. They're 7 and 9 years old. I've spoken to their classroom about what I do for a living. I've -- I use different toys and things to talk about how they're made and what kind of profit we could earn on those, speaking to high school students. I'll give an example. Just this week, my 9-year-old came home with an idea.

She said she wanted to be a mother's helper. So she's making flyer. She's handing them out to all -- many of our friends, and we started to tell you about how much she should charge for it. And then she started talking about what she's going to do with the money when she earns it.

And I was very proud that she said, maybe what she'll do with the money is go and buy more items so that she can have more tools to use as a mother's helper, toys and games for the kids, and I said to her, I said that's basically reinvesting in your business and it might improve your pricing over time if you become a more qualified mother's helper. But it's just -- kind of making sure the conversation is flowing back and forth from a very early age, I think, is very important.

Joseph Cass

Fantastic. It's great. I've got 2 girls who are 1 and 6. So basically, the reason why I asked this question is just so I can steal both of your ideas going forward. So thanks very much for that. The last question here, Saira, goes to you. So usually on this podcast, they interview leaders, influential individuals from the world of finance, economics, et cetera. Thinking about everyone you've met, worked with or just kind of seen from afar in your career, who would be kind of an interesting potential guest, I should ask to join a future episode of this podcast?

Saira Malik

I have 2 ideas. The first one is Mike Pyle. He's Economic Adviser to Kamala Harris and former BlackRock Chief Investment Strategist. I think he'd be fantastic. And second is Katie Koch. She just recently became CEO of TCW. She was former Head of Equity at Goldman Sachs. I know her personally. I think she'd be another fantastic guest on this podcast.

Joseph Cass

Well, thank you. Thank you both. Thank you, Saira. Thank you, Ruth, for your time on this session today. Everyone watching and listening, I hope you enjoyed it, and see you next time on Fixed Income In 15.